Conversion Vote's Over, Fight Isn't at Lafayette

Lafayette Federal Credit Union in Kensington, Md., has won membership approval to convert to a mutual thrift, but a vocal group of members who oppose the plan has refused to give up the fight.

The group is urging the National Credit Union Administration to invalidate the Dec. 16 vote, alleging that the "methods and procedures employed by LFCU in obtaining the vote were materially flawed in that the documents … were inaccurate and misleading."

The $330 million-asset credit union filed its conversion application with the Office of Thrift Supervision on June 12. Since then Lafayette's board has faced vocal criticism from credit union members, industry representatives, and even local politicians, who have raised concerns about the board's motivations for converting.

Conversion opponents have argued that a charter switch is not in the best interest of credit union members, and that ultimately it would only enrich board members while limiting access to affordable financial services.

The NCUA said it is evaluating the group's concerns, though it would not confirm a report last week on The Credit Union Journal's Web site that it had already questioned Lafayette officials about the voting process. The regulator could invalidate the results and force a new vote if it finds irregularities - though the last time it tried to do that it ended up in court and lost.

Opposition to credit union conversions has become increasingly organized - and effective - in recent years.

In 2004 a political activist at Columbia Credit Union in Vancouver, Wash., rallied fellow members to challenge, and eventually torpedo, the $726 million-asset credit union's conversion plan.

This past April the $1.8 billion-asset DFCU Financial Credit Union in Dearborn, Mich., scrubbed its conversion plan in the face of stiff opposition from a member group called DFCU Owners United.

That group's efforts were funded in part by the National Center for Members Trust, a little-known organization founded by three credit union executives and designed to support conversion opposition throughout the country.

The center also assisted the group opposed to Lafayette's conversion by helping to establish a Web site, www.savemycreditunion.coop, and providing the legal blueprint for a petition drive calling for a vote to oust Lafayette's nine directors.

(The member group says that it has more than 600 of the 750 signatures required to force such a vote, and that is confident it will gather the remainder.)

The allegations of voting irregularities stem from a Dec. 16 special meeting in which Lafayette's members voted to approve the conversion.

In a Dec. 21 letter to the NCUA, the opposition group wrote that Michael Hearne, Lafayette's president and chief executive officer, said he would not confirm during the meeting that branches in two federal buildings would remain open after the conversion. That statement, the opposition group wrote, conflicts with information in Lafayette's previously released disclosure statements, which indicated that the branches would remain open in the event of a conversion.

"We believe that such statements were presented with the intent of misleading members into voting for the conversion who otherwise would have voted against the conversion," the letter said.

The opposition group also charged that some conversion ballots were submitted directly to credit union employees at Lafayette branches, thereby violating a requirement that ballots be handled only by an independent third party.

"As such, members have no way of knowing whether their ballots were submitted to the inspector of elections," the letter said.

Finally, the group alleged that Lafayette chairman Arnold S. Rosenthal's failure to respond in writing to an Oct. 3 letter requesting information about the consequences of a conversion "caused members to effectively be disenfranchised in that they were unable to make informed decisions on the conversion vote."

John McKechnie, the NCUA's director of public and congressional affairs, said that the regulator has received the group's letter, in addition to several others expressing similar concerns, and is evaluating the merits of the complaints.

"The agency has a statutory responsibility to monitor and assess the voting process when any credit union wants to convert," Mr. McKechnie said. "In this instance, several Lafayette members have contacted the agency and brought some issues to our attention, which we are factoring into our evaluation."

Phone calls to Mr. Hearne requesting comment for this article were not returned. Lafayette officials have not commented publicly on the conversion plan in several months.

But Keith Leggett, a senior economist at the American Bankers Association, said the results of the Dec. 16 vote should stand.

"What you had was a legal vote, and the members spoke," Mr. Leggett said. "You can't have it both ways when you talk about the beauty of the democratic governance of the credit union system and then not like the results."

The NCUA faced sharp criticism in the aftermath of its 2005 attempt to block the conversions of OmniAmerican Credit Union in Fort Worth and Community Credit Union in Plano, Tex. In those cases, credit union members had approved the boards' conversion plans, but the NCUA invalidated the votes, because the disclosure notices were not folded properly. The credit unions then sued the regulator, and a federal magistrate ruled that it had overstepped its authority, paving the way for the credit unions to complete their conversions.

Mr. Leggett said he expects that in the case of Lafayette, the NCUA "will look under every stone to see if there is a way to not certify the vote."

Scott Stiens, a leader of the opposition group, said he hopes his efforts can persuade the NCUA to invalidate the vote.

Lafayette's vote to move forward with the conversion has "reinspired" its opponents, he said.

"People are furious," Mr. Stiens said. "Many of the people who signed that petition are all the more eager and know the urgency of the removal of the leadership now."

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